Holiday shopping season forecast: consumers fight for deals

NEW YORK (Reuters) - U.S. retailers enter the holiday season vowing to control discounting that has wreaked havoc on their results in the past, but competition between stores, consumers trained to expect discounts and a still-recovering economy point to a difficult year.

The holidays are the most important time of the year for retailers as well as some shoppers: about a third of some stores' profits are made in the last two months of the year, and discounts can make or break those results.

A new forecast from market research firm NPD indicates that holiday shopping could show the slowest year-on-year growth since 2009, and a survey from consultant PricewaterhouseCoopers shows shoppers are increasingly looking for deals. Both were provided exclusively to Reuters.

High-end retailer Nordstrom (NYSE ended the summer saying it planned 20 percent fewer clearance days this year than a couple of years ago, with another 25 percent reduction next year, as it focused on service and "differentiated" products.

Teen apparel retailers such as Abercrombie and Fitch (NYSE and Aeropostale said they would concentrate on offering more items at full price and minimize promotions. Last year's deep price cuts reflected the need to get rid of logo-centric clothes, which rapidly fell out of fashion. Bohemian-style apparel and floral designs will be more likely to sell at full price, they said.

Retailers that can distinguish themselves with distinct or personalized products and services have a better chance of boosting margins than broad discounters, experts said.

But better products and inventory management, two of retailers' most talked-about tools for keeping prices high over the holidays, have to compete with buyers' memories of years of price cuts of 50 percent or more.

"The consumer has been permanently conditioned to expect significant discounts," said Steven Barr, who leads PricewaterhouseCoopers' U.S. Retail and Consumer team.

His firm's survey data show that 87 percent of consumers say price will be the prime factor in deciding what to buy this holiday, up 3 percentage points from last year.

While the economy has picked up from last year, overall spending is being crimped by stagnant wage growth and rising costs for healthcare and education, according to the consultant.

"Since the economic recovery has been sluggish and episodic, retailers can come to this season with strategies to not go promotional, but it only takes one or two to begin going promotional (to disrupt their strategies)," said Barr.

Early estimates are for a dip in sales growth, potentially to the lowest in six years.

Retail researcher NPD's chief industry analyst, Marshal Cohen, predicted 2.8 to 3.2 percent sales growth, down from 3.5 percent last year, excluding groceries and autos, for November to mid-January. The low end of that forecast would mark the slowest growth since 2009.

Consultants AlixPartners forecast 2.8 to 3.4 percent growth this holiday season, compared with its calculation of 4.4 percent for 2014. The lower end would also mark the lowest since 2009 by that company's methodology.

AlixPartners' retail practice director, Noam Paransky, said shoppers have saved about $100 billion from low gas prices since last year, but middle- and low-income shoppers are holding on to those savings or spending on travel and entertainment.

High income shoppers are scaling back due to oscillations in their stock market portfolios, and the Federal Reserve's delay in raising interest rates has also worried shoppers who see the hesitancy as a reflection of uncertainty in the economy, analysts said.

DEALS START EARLY

Several analysts surveyed by Reuters said they had seen Christmas décor and service offers already, as retailers try to bring in shoppers before heavy discounts started.

Walmart announced its holiday layaway program two weeks earlier than last year, dropping the price of eligible items from $15 to $10. The National Retail Federation's Kathy Grannis Allen and Kantar Retail's Leon Nicholas said they recently saw holiday items being put up in CVS Pharmacy stores. The company, however, said it does not launch nationally until November.

"In a good economy these types of promotions may not have come this early," said Grannis Allen.

Research firm Kantar Retail's Leon Nicholas said retailers would open the promotional floodgates in October, while NPD's Cohen expects an early November start compared to last year's mid-November kick off.

That may be enough to get some attention, said Andrew Lipsman, vice president of marketing and insights at media analytics company comScore. But for shoppers, he said: "It doesn't necessarily mean they are going to be buying now."

(This story corrects Paransky's affiliation to AlixPartners from NPD in 16th paragraph)

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